A New Perspective on Canada's Economic Health

While the news has been full of negative reports on Canada’s economy, a new report has suggested that it might not be as bad as it is sometimes portrayed, and that Canada is holding its own globally in a few key areas. 

A recent WealthSimple report for Q2 2024 has indicated that concerns about Canada’s economy might be somewhat exaggerated due to over-comparisons with the U.S. When viewed in a broader international context, Canada’s economic performance is more favourable. 

GDP Per Capita

While Canada’s GDP per capita seems unimpressive compared to the U.S., it aligns more closely with other wealthy nations. The U.S. has significantly outpaced many countries, including Canada, which skews perceptions, so, in a global comparison excluding the U.S., Canada’s GDP per capita is competitive. This broader perspective reveals that Canada’s economic output per person is consistent with other affluent countries, emphasizing that the U.S. is an outlier rather than the standard.

Stock Market Performance

Similarly, the Toronto Stock Exchange (TSX) has underperformed relative to the S&P 500 but has fared comparably to global stock indices when excluding U.S. firms. This suggests that Canadian companies are not underperforming; rather, Canada, as a lower-population company, has fewer companies and lacks tech giants that drive U.S. market performance. The TSX has kept pace with other international markets, indicating solid performance relative to the global economy. This apparent “underperformance” of the TSX is instead due to the unique dominance of U.S. tech companies.

Innovation and Research & Development (R&D)

Another area that appears to be failing is Canada’s innovation landscape because of low research and development (R&D) spending. Canada does spend less than other countries on R&D, but when looking at the number of researchers per capita metric, it is more on par with other countries. Despite underfunding, Canada’s research potential remains strong due to its educated workforce. The issue lies in the lack of funding, not in the quality or quantity of the researchers.

Again, the US is an outlier, with high R&D spending driven by massive investments from tech giants, skewing comparisons. In 2023 alone, US technology companies spent $229 billion US on R&D.

Canada’s Challenges and Opportunities

Canada faces challenges, including a lack of competition, affordability issues, and others. Despite these economic issues that need to be addressed, the country is in relatively good shape. For example, Canada’s exports are near all-time highs, suggesting strong international demand for Canadian goods. 

Canada does have significant potential for growth if strategic investments are made. However, a pessimistic view can impact the country, as Canadians constantly compare their economic performance to the US, rarely considering comparisons with countries like France, the UK, or the EU. This highlights that taking a more balanced view that includes other global peers may be beneficial, to avoid undue pessimism. However, it is also important to note that Canada could also benefit from learning from some of the US’s strengths.